Chapter 11 part two

A company is considering buying a component part that they currently make. Items related to the equipment being used to make the component that are relevant to this decision include 1. original cost of the equipment being used 2. salvage value 3. annual depreciation charges 4. alternative uses for the equipment

2. salvage value 4. alternative uses for the equipment

Opportunity costs should Blank______ be included in a make or buy analysis. Multiple choice question. never always sometimes

always

The step that limits total output because it has the smallest capacity is called a constraint or

bottleneck

When dealing with a constrained resource, managers should focus their attention on managing the Blank______. Multiple choice question. bottleneck value chain production employees

bottleneck

Anything that prevents you from getting more of what you want is a(n)

constraint

When a shortage or limited resource of some type restricts a company's ability to satisfy demand, the company has a(n)

constraint or bottleneck

A joint product should be processed after split-off if the Blank______. Multiple choice question. total revenue exceeds the total incremental and allocated common costs incremental revenue after split-off exceeds the incremental processing cost after split-off revenue after additional processing exceeds the revenue at the split-off point

incremental revenue after split-off exceeds the incremental processing cost after split-off

Joint costs are Blank______. Multiple choice question. common costs that must be allocated to make decisions about the individual products economically attributable to all end products irrelevant in decisions regarding what to do with a product after split-off increased or decreased after the split-off point

irrelevant in decisions regarding what to do with a product after split-off

Costs incurred up to the split-off point in a process in which two or more products are produced from a common input are called _______ costs.

joint

Two or more products that are produced from a common input are known as products.

joint

Two or more products produced from a common input are called Blank______. Multiple choice question. joint costs opportunity costs joint products intermediate products

joint products

Joint costs incurred prior to the split-off point are Blank______ relevant in decisions regarding what to do from the split-off point forward. Multiple choice question. never always sometimes

never

Allocated common costs are Blank______. Multiple choice question. never relevant to decisions always relevant to decisions only relevant to decisions if they are unavoidable only relevant to decisions if they are avoidable

only relevant to decisions if they are avoidable

Deciding what to do with a joint product at the split-off point is a(n) _______ or ______ _________decision.

sell process further

Allocated common costs are Blank______ avoidable and relevant to a decision. Multiple choice question. sometimes never always

sometimes

The point in the manufacturing process at which joint products can be recognized as separate products is called the Blank______ point. Multiple choice question. sell or process split-off opportunity intermediate

split-off

When a resource, such as space in the factory, has no alternative use, its opportunity cost is Blank______. Multiple choice question. not determinable zero negative infinite

zero

Joint costs are Blank______. Multiple choice question. irrelevant in decisions regarding what to do with a product after split-off increased or decreased after the split-off point economically attributable to all end products common costs that must be allocated to make decisions about the individual products

irrelevant in decisions regarding what to do with a product after split-off

Space being used that would otherwise be idle has a(n) ____ cost of zero.

opportunity or relevant

Deciding what to do with a joint product at the split-off point is a Blank______ decision. Multiple choice question. sell or process further special order product line make or buy (outsource)

sell or process further

The split-off point is the point in the manufacturing process at which the ______ products can be recognized as separate products.

joint

When is it profitable to continue processing a joint product after the split-off point? Multiple choice question. It is never profitable. It is profitable when the incremental processing cost exceeds the incremental revenue. It is profitable when the incremental revenue exceeds the incremental processing cost. It is always profitable.

It is profitable when the incremental revenue exceeds the incremental processing cost.

The costs incurred up to the split-off point in a process in which two or more products are produced from a common input are known as Blank______ costs. Multiple choice question. opportunity joint intermediate relevant

joint

Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Andrews' per unit manufacturing costs for 20,000 units is as follows: Cost Per Unit Total Variable manufacturing cost $12 $240,000 Supervisor salary $3 $60,000 Depreciation $1 $20,000 Allocated fixed overhead $7 $140,000 If the part is purchased, the supervisor position will be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. The company should Blank______. Multiple choice question. continue to make the part — $40,000 advantage buy the part — $80,000 advantage continue to make the part — $60,000 advantage buy the part — $100,000 advantage

Depreciation is not a relevant cost. The avoidable costs of making the product are the variable costs plus the supervisor salary or $15 per unit. The total savings is $60,000 ($18 buy price - $12 variable cost - $3 supervisor salary = $3 advantage to make × 20,000 units). The avoidable costs of making the product are the variable costs plus the supervisor's salary or $15 per unit. The total savings is $60,000 ($18 buy price - $12 variable cost - $3 supervisor salary = $3 advantage to make × 20,000 units). continue to make the part — $60,000 advantage

Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. The relevant manufacturing costs for the part is $15 per unit. If the company decides to purchase the part, the space now being used can be used to produce another product that will generate a segment margin of $80,000 per year. Should Andrews continue to make or should they buy the part? Multiple choice question. Continue to make — $60,000 advantage. Buy — $80,000 advantage. Continue to make — $140,000 advantage. Buy — $20,000 advantage.

The total buy price = 20,000 x $18 or $360,000. The cost to make equals (20,000 x $15) + $80,000 forgone opportunity or $380,000. Thus, there is a $20,000 advantage to buying the part. Buy — $20,000 advantage.

Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. The relevant manufacturing costs for the part is $15 per unit. If the company decides to purchase the part, the space now being used can be used to produce another product that will generate a segment margin of $80,000 per year. Should Andrews continue to make or should they buy the part? Multiple choice question. Buy — $80,000 advantage. Buy — $20,000 advantage. Continue to make — $60,000 advantage. Continue to make — $140,000 advantage.

The total buy price = 20,000 x $18 or $360,000. The cost to make equals (20,000 x $15) + $80,000 forgone opportunity or $380,000. Thus, there is a $20,000 advantage to buying the part. Buy — $20,000 advantage.